Launched in 1928 this US fund was the first to invest in both stocks and bonds. Now, more than 80 years later, it’s once again attracted so much money that Vanguard might put the brakes on new investments. It’s easy to see why. Managed since its inception by Wellington Asset Management (Vanguard got involved in 1975), the fund’s performance ranks it in the top 10 percent of all moderate-allocation funds over the past three, five and 10 years.

Vanguard Wellington (VWELX) takes a hard line to its investment process, focusing on companies whose growth is expected to accelerate. Portfolio holdings also must be attractively priced relative to the market and their earnings outlook.

Although management favors value stocks, they don’t necessarily buy the names with the lowest price-to-earnings (PE) ratio and are willing to pay a bit extra for higher quality and higher growth. Recently, for instance, Wellington’s stock holdings were priced at around 14 times earnings, with an earnings growth rate of 9.2 percent. Although that’s not bargain pricing, these ratios are significantly better than those of the S&P 500.

Instead of bottom-fishing, management keeps a close watch on high-quality companies (usually with above-average dividend yields) and buys the stock if its price declines significantly. Once they establish a position, they typically hold a stock for about four years–any investment requires a lot of conviction in the company’s prospects. That aspect of management’s approach also keeps the turnover rate around 30 percent, making the fund extremely tax-efficient.

But just because a stock is cheap doesn’t mean it will rebound. To guard against the downside, management relies on the in-house research of Wellington’s equity analysts and input from the company’s other value-stock managers.

Supply and demand analysis is one of their key gauges. Industries often blow up because of overinvestment, which leads to excess supply. The fund tends to avoid the “it” sector of the day, instead making contrarian bets on ailing industries. Financial and health care names represent the fund’s biggest sector bets of late.

The fund’s stake in foreign companies currently hovers around 15 percent and will never exceed 25 percent. A recent favorite is Total SA (NYSE: TOT), one of the world’s largest integrated oil and natural gas outfits.

Although most of Wellington’s total return comes from the stock portion of its portfolio, which usually accounts for 65 percent to 70 percent of assets, its investment-grade bonds provide a cushion during stock-market downturns and generate reliable revenue. That approach has kept the fund’s yield consistently above 3 percent (it currently yields 3.3 percent) and allowed it to ride out 2008 with a relatively modest 22 percent loss.

The bond side focuses on corporate bonds and is supported by Wellington’s investment-grade credit analysts. Last year bond manager John Keogh made substantial investments in government securities such as Treasuries and agency-backed mortgage bonds, but as government bonds rallied hard and now offer meager yields, more of the fund’s assets are being directed to corporate debt. Corporate bond positions now account for over two-thirds of the fund’s fixed-income portfolio and commercial mortgage-backed securities are notably absent from its holdings.

Although we typically don’t cover funds with high minimum investments (Vanguard Wellington requires a $10,000 minimum initial investment for all accounts), in this case we’re making an exception because of the fund’s indisputable quality. Management’s conservative and contrarian approach enables the fund to ride out any market cycle. And with an expense ratio of just 0.29 percent, it’s one of the cheapest moderate-allocation funds available.

While it has very capable management at the helm, Wellington Asset Management is known for working in the best ideas of all of its team members.

Management doesn’t drag its feet on closing the fund when its asset base grows unwieldy. A behemoth at more than $45 billion, it appears to be once again approaching the point where management might cut off the flow of new money; investors interested in getting in on this best-of-class fund should make their move sooner rather than later.